THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND … · 2020-06-07 · THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THE INFORMATION MUST BE READ IN CONJUNCTION

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THE INFORMATION MUST BEREAD IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

BUSINESS

OUR VISION

Our vision is to become a pre-eminent talent-oriented online entertainment content provider in China.

OVERVIEW

We are a streamer talent powerhouse. We are a leading live streamer facilitator, specializing in

streamer incubation and management, online entertainment content production and distribution, and content

marketing. We ranked No.4 in the highly fragmented live streamer association market in China, in terms of

net revenue generated from live streaming, according to the F&S Report. Leveraging our partnership with a

comprehensive league of live streaming platforms in China, we have become one of the few streamer

associations with access to the largest user base in China’s live streaming market, according to the F&S

Report.

We have established a deep, diversified streamer pool, covering substantially all major live streaming

genres such as general entertainment and gaming. Leveraging their network influence, our streamers also

stream on e-commerce platforms to facilitate sponsored product sales. As of April 30, 2020, we had

approximately 29,300 streamers registered in associations we establish on partnered live streaming

platforms, with over 1,000 exclusively contracted streamers. In 2019, our streamers generated a total of 2.6

million streaming hours and over RMB1.0 billion gross billing from the sales of virtual items on live

streaming platforms. As of December 31, 2019, we had over 320 top streamers each generating more than

RMB500,000 gross billings from the sales of virtual items on live streaming platforms in 2019. As of

April 30, 2020, our top 50 PC-based streamers and top 30 mobile-based streamers accumulated an

aggregate of 221.7 million fans. We also pride ourselves on our longstanding collaboration with most major

live streaming platforms in China, including YY Live, Huya Live, Tencent eGame, Kugou Live, Huajiao

Live, Douyin, Kuaishou, MOMO and Now Live, many of which have been our partners for more than three

years.

China’s live streaming market is still in a fast development stage. The market size by total gross

billings is expected to grow from RMB108.2 billion in 2019 to RMB310.1 billion in 2024 at a CAGR of

23.4%, according to the F&S Report. The live streaming industry is, by nature, nondiscriminatory. While

we believe that anyone, professional or amateur, celebrity or nobody, can stream, it does not follow that

anyone could stream successfully and gainfully. Live streaming platforms also generally lack the resources

or expertise to effectively manage a multitude of streamers with a wide spectrum of talents, proficiencies

and aspirations. As an industry pioneer, we believe we play a unique, indispensable role in this market by

connecting streamers with live streaming platforms. On the streamer side, we have a sophisticated streamer

grooming system to discover, train and promote streamers, offering hopes of fame and wealth to ordinary

Chinese seeking to make a difference in the cyberspace and beyond. On the live streaming platform side, we

congregate our streamers in groups bonded by live streamer associations (主播公會) to institutionalize

streaming activities for profit and centrally manage business affairs between streamers and platforms.

We tapped into the short video market in early 2018 to develop short videos and incubate IP content,

leveraging a synergy with our live streaming business. With our accumulated extensive promotional

resources and monetization experiences, we are well-positioned to exploit China’s booming short video

market, whose market size is expected to increase from RMB90.0 billion in 2019 to RMB291.9 billion in

2024 at a CAGR of 26.5%, according to the F&S Report. As of April 30, 2020, we established six certified

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MCNs to facilitate monetization and assist in video production and promotion on five major short video

platforms in China, including Douyin, Kuaishou, Jinri TouTiao, Tencent Open Media and Bilibili, with an

aggregate of over 1,400 registered short video creators and over 55 million fans, and produced and

distributed an aggregate of over 89,000 short videos, which collectively generated over 8.8 billion views

and 257 million likes.

We have a highly scalable business model through centralized management of streamers vis-à-vis live

streaming platforms. Leveraging our streamer grooming system and operational infrastructure, we have

achieved significant economies of scale by minimizing the variable costs associated with adding new

streamers to our troopes. In addition to organic growth, we had a track record of disciplined acquisitions.

We have acquired streamers with great potential and managed to fundamentally improve their proficiency

and popularity with our proven streamer grooming system. We have also acquired well-performing streamer

associations to achieve rapid growth and capture consolidation opportunities in the fragmented market.

Leveraging our operational capabilities, we can rapidly integrate the acquired streamer associations with our

existing operations. We also engage in content production to retain more control over the content our

streamers deliver to their fans, which allows us to help streamers improve their shows, and at the same time,

allows us to quickly replicate successful cases and scale up our repertoire of viable streamers.

We generate revenue primarily from sharing a portion of the gross billings from the sales of virtual

items on live streaming platforms, and to a lesser extent, from our short video business and other services.

We achieved strong profitability during the Track Record Period. We recorded revenue of RMB50.2

million, RMB74.6 million and RMB83.0 million in 2017, 2018 and 2019, respectively, and net profit of

RMB18.1 million, RMB25.6 million and RMB32.5 million in the same periods, respectively.

COMPETITIVE STRENGTHS

We believe the following competitive strengths have contributed to our success and differentiated us

from our competitors.

Market leader with comprehensive streaming platform coverage

We are a leading live streamer facilitator, specializing in streamer incubation and management, online

entertainment content production and distribution, and content marketing. We ranked No.4 in the highly

fragmented live streamer association market in China, in terms of net revenue generated from live

streaming, according to the F&S Report. We have established a deep, diversified streamer pool, covering

substantially all major live streaming genres such as general entertainment and gaming. Leveraging their

network influence, our streamers also stream on e-commerce platforms to facilitate sponsored product sales.

As of April 30, 2020, we had approximately 29,300 streamers registered in our streamer associations, with

over 1,000 exclusively contracted streamers. In 2019, our streamers generated a total of 2.6 million

streaming hours and over RMB1.0 billion gross billing from the sales of virtual items on live streaming

platforms. As of December 31, 2019, we had over 320 top streamers each generating more than

RMB500,000 gross billings from the sales of virtual items on live streaming platforms in 2019. As of

April 30, 2020, our top 50 PC-based streamers and top 30 mobile-based streamers accumulated an

aggregate of 221.7 million fans.

As an industry pioneer tracing our history back to 2016, we have accumulated extensive experience in

developing our streamer grooming system, collaborating with streamers and live streaming platforms, and

navigating the complex, ever-changing regulatory landscape. We pride ourselves on our longstanding

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collaboration with a comprehensive league of live streaming platforms in China, allowing us to become one

of the few streamer associations with access to the largest user base in China’s live streaming market,

according to the F&S Report. As of December 31, 2019, we maintained trusted business relationship with

most major live streaming platforms in China, including YY Live, Huya Live, Tencent eGame, Kugou Live,

Huajiao Live, Douyin, Kuaishou, MOMO and Now Live, many of which have been our partners for more

than three years. The streamer associations we establish on partnered live streaming platforms are usually

competitive. For example, from 2016 to 2019, our streamer association, Huashe, was consistently among

the top ten in the annual tournament hosted by YY Live. As of the Latest Practicable Date, Huashe ranked

No.2 on the latest ranking of monthly best streamer associations in terms of development and earnings

maintained by YY Live. We believe our collaboration with live streaming platforms is mutually beneficial,

as evidenced by numerous accolades we received from them. For example, we were named as the

Influential Association of 2019 by Tencent eGame. We also received numerous awards and recognitions

from industry associations, such as the Most Influential Streamer Association of the Year (2017) by

zbrank.com and the Live Streamer Association of the Year (2018) by the Online Live Performance

(Streaming) Branch of China Association of Performing Arts. See “— Awards and Recognition” for details.

Proven and sophisticated streamer grooming system

We remain devoted to transforming amateur and mediocre streamers into influential internet

celebrities. Leveraging our extensive industry experience, we have cultivated a sophisticated streamer

grooming system to discover, train and promote streamers. We screen novice streamers by applying various

quantitative and qualitative metrics to identify potentials in streaming capability, and enter into an exclusive

talent agency agreement with a select group of promising streamers. We invest in our streamers’ success

through comprehensive training courses aimed to develop their live streaming techniques and cultivate their

personal styles to enhance their popularity among their fans. We also deploy a dedicated team of deskside

support to monitor how novice streamers interact with viewers during their streaming and provide practical

guidance on matters ranging from background settings, conversational skills, makeup and dressing tips, to

the formats and topics of streaming content. In addition, our operational staff continuously impart their

knowledge and experience accumulated during the course of their daily work to streamers through “on-the-

job” training. Our comprehensive live streaming platform coverage has made it possible for our streamers to

rotate among different live streaming platforms until they settle down on a platform that best befits their

personalities or talents and reinvigorate the sense of excitement among the fans across different platforms to

increase their career lengths.

We tailor-make our promotion strategies for each streamer to groom their popularity among their fans.

We utilize both online and offline channels to enhance each streamer’s public exposure and cross-promote

our novice streamers through multi-party live streaming and streamer PK. Through the cross-promotion

approach, we enable novice streamers to acquire fan base quickly and improve their streaming techniques

cost-effectively. In addition, we conduct cross-promotion among different live streaming genres by pairing

up a general entertainment streamer with a gaming streamer to collectively leverage each other’s fan base.

Our proven streamer grooming system efficiently and effectively enables novice streamers to gain

proficiency and popularity. For example, in 2019, approximately 43.1% of all newly exclusively contracted

novice streamers increased their average monthly gross billings by over 20% compared to their gross

billings in the first month, and approximately 55.0% of all newly exclusively contracted streamers increased

their average monthly gross billings by over 20% compared to their average monthly gross billings in the

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same year before entering into the exclusive contract with us. In addition, the number of our top streamers

(each generating annual gross billings of more than RMB500,000) increased from over 130 as of

December 31, 2017 to over 320 as of December 31, 2019. As a result, we have become top-of-mind to both

live streaming platforms and streamers. The number of live streaming platforms we have partnered with

increased from 14 as of December 31, 2017 to 18 as of December 31, 2019. The number of our exclusively

contracted streamers increased from over 400 as of December 31, 2017 to over 1,000 in as of December 31,

2019. Our average monthly engaged streamers increased from over 3,600 in 2017 to over 4,000 in 2019,

and our average monthly active streamers increased from approximately 980 in 2017 to approximately

1,900 in 2019. Our top streamers demonstrated a high level of loyalty during the Track Record Period. For

example, approximately 88% of our top streamers who generated gross billings of more than RMB500,000

in 2018 remained as our engaged streamers in the fourth quarter of 2019.

Highly scalable business model empowered by a deep streamer pool

We operate a highly scalable business model featuring a centralized system to manage a deep and

ever-growing streamer pool. We register a streamer association to host a certain number of our streamers on

a partnered live streaming platform so that they are allowed to perform on that platform, and centrally

manage business affairs between our streamers and the partnered platform. Leveraging our streamer

grooming system and operational infrastructure, we have achieved significant economies of scale by

minimizing the variable costs associated with adding new streamers to our troopes. We also retain

substantial control over the content our streamers deliver to their fans through our guidance on content

production and content monitoring, which allows us to help streamers improve their shows, and at the same

time, allows us to quickly replicate successful cases and scale up our repertoire of viable streamers.

Instead of relying on a limited number of top streamers and paying them significant sign-on fees, we

are focused on incubating and maintaining a sufficient number of viable streamers to provide a greater

variety of content to their fans. Leveraging the efficacy of our streamer grooming system and the size of our

streamer pool, we can continuously identify streamer talent and cultivate home-grown KOLs.

In addition to organic growth, we had a track record of disciplined acquisitions. We have acquired

streamers with great potential and managed to fundamentally improve their proficiency and popularity with

our proven streamer grooming system. We have also acquired well-performing streamer associations to

achieve rapid growth and capture consolidation opportunities in the fragmented market. Leveraging our

operational capabilities, we can rapidly integrate the acquired streamer associations with our existing

operations.

Moreover, we are among a select group of trailblazers to partner with certain top streamers to jointly

represent, develop and manage certain streamers through proprietary streamer associations. These partnered

top streamers are typically responsible for recruiting and nurturing apprentice streamers, leveraging their

popularity and experience. We provide them with guidance and support in various aspects, including

instruction on content creation, provision of promotion resources, and procurement of commercial

opportunities. Joint representation of streamers provides an additional and replicable channel to cost-

effectively enlarge our streamer pool and exploit the popularity and the fan base of the partnered top

streamers, which also serves to increase their career lengths and enhance their loyalty to us.

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Diversified monetization channels with significant potential

We maximize our streamers’ economic potential through diversified monetization channels for

different live streaming genres based on their distinctive characteristics. For example, in the general

entertainment setting, fans primarily proffer proclamations of affection and support by purchasing virtual

items as gifts, whereas game enthusiasts generally prefer to play together with their admired game

streamers. We have designed different monetization strategies for these genres. We instruct general

entertainment streamers to actively engage with their fans, strengthen their bonding and deliver more

captivating performance. As for game streamers, we leverage our content creation capabilities and our

strong presence on social media channels to help them produce and distribute themed video blogs to better

capitalize on their viewer traffic and followers. As we are stepping up our effort to incubate e-commerce

streamers, we have recently initiated collaboration with major online marketplaces, such as Taobao Live and

JD Live, to explore the significant monetization potential in sponsored product sales.


leveraging a synergy with our live streaming business. We have since made significant headways into

exploiting the monetization potential of our short video business by capitalizing on our content production

capabilities and the “fan effect” of our streamers. As of April 30, 2020, we established six certified MCNs

on five major short video platforms in China, including Douyin, Kuaishou, Jinri TouTiao, Tencent Open

Media and Bilibili, with an aggregate of over 1,400 registered short video creators and over 55 million fans.

In December 2019, Yuntu, our certified MCN on Tencent Open Media, ranked No.4 on the monthly gaming

MCN influence list.

We also endeavor to increase our streamers’ influence beyond live streaming by offering them various

online and offline commercial opportunities. For example, we procure advertising and brand endorsement

opportunities for our streamers, and share a portion of their advertising and brand endorsement fees.

Additionally, we arrange our streamers to perform in online drama series and reality TV shows to boost

their presence in the online entertainment market.

Seasoned and stable management and operational team

We have built our Company upon our conviction for the enormous growth prospects of China’s live

streaming industry, as we believe in people’s natural demands for entertainment and companionship. Our

management team has prominent strategic visions, extensive managerial experience and in-depth industry

expertise, all of which have been instrumental in driving the success of our business. The key members of

our senior management have been with us since our inception and have extensive industry experience in a

wide range of field, covering live streaming, entertainment, finance and operations. We believe that our

seasoned management team helps us stay abreast of the evolving industry trends and user preferences in

China’s live streaming industry. See “Directors and Senior Management” for details.

We also attribute our success to our dedicated operational team. As of the Latest Practicable Date, we

assembled a content production and operation team of 93 members, accounting for 63.3% of our total

employees. The managerial staff who lead our operational team are early entrants to the live streaming

industry in China with an average of over six years of industry experience, well-versed in serving both live

streaming platforms and streamers.

GROWTH STRATEGIES

We intend to pursue the following strategies to further grow our business.

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Strengthen our market leading position through organic growth and potential acquisitions

We will continue to strengthen our market leading position. We seek to stay abreast of the rapidly

evolving industry trend by, among other, building our genre- and topic-specific capabilities to better address

various emerging live streaming segments, such as cuisine, fashion, cosmetics, animation and games. To

that end, we will engage a greater variety of streamers with different personalities and fan base through our

streamer discovery efforts and the joint representation model. We seek to solidify our collaboration with

partnered live streaming platforms and further expand our platform coverage. We also seek to establish

partnerships with top market players in a broader internet celebrity economy, including short video

platforms and other distribution channels, e-commerce platforms, brand owners, online retailers and other

merchants.

In addition to organic growth, we intend to selectively pursue strategic investments and acquisitions to

further strengthen our competitiveness. We plan to enlarge our streamer pool by acquiring individual

streamers with proven commercial potential and established fan base. Moreover, we will carefully evaluate

and execute investment and acquisition opportunities that complement our existing business, optimize our

profitability, and/or demonstrate synergies with our existing business. For example, we may consider

investment in or acquisition of MCNs with proven monetization channels, as well as streamer talent

agencies with a distinctive presence in key emerging live streaming segments. As of the Latest Practicable

Date, we had not identified any potential investment or acquisition targets.

Optimize our streamer grooming system

We plan to continuously optimize our streamer grooming system as our core competence. We will

closely monitor and analyze industry trends and viewer preferences, refine data-based insights into market

development and opportunities, and improve our training methodologies accordingly. We plan to further

streamline and standardize our operating procedures and optimize the effectiveness of the development

process to discover, train and promote streamers. Specifically, we plan to establish streamer training centers

comprising on-premise streaming rooms to complement our training courses with practical in-the-field

coaching, through which we will not only cultivate streamers for ourselves, but also provide training

services to live streaming platforms and other talent agencies.

Enhance monetization capabilities

We plan to maximize the commercial potential for our streamers by producing peripheral

entertainment products to achieve synergies, which in turn will enhance our monetization capabilities. For

example, we plan to produce drama series and movies featuring China’s live streaming industry and our

streamers in lead roles. We plan to create our own IP content and enhance the popularity of our streamers

through these works. We believe that investing in premium content assets will allow us to stay at the

forefront of the market to retain competitive edge and increase profitability.

Additionally, we will step up our efforts in penetrating e-commerce live streaming, whose market size

is expected to increase at a CAGR of 42.9% from 2019 to 2024, according to the F&S Report. We will

explore collaboration opportunities with brand owners to help them reach and monetize the large fan base of

our streamers through content marketing. Instead of relying on the charisma of individual streamers, we

plan to form a taskforce to systematically design customized campaigns for third-party merchants in the

form of short videos, combining the popularity of our streamers with professionally generated content

compelling to potential buyers.

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Furthermore, we seek to recruit more qualified personnel and expand our short video production

facilities to capture the significant growth potential in the short video market, whose market size is expected

to increase at a CAGR of 26.5% from 2019 to 2024, according to the F&S Report.

Invest in technology and data analytics

We seek to establish an integrated technology infrastructure and invest in data analytics to optimize

our operational management and boost our operational efficiency. For example, most of our streamers

stream from home at varied intervals and frequencies and during different times of the day. As such, we

plan to establish a data and information management system that monitors the performance of individual

streamers in real-time and dynamically allocates promotional resources among them based on their

popularity, thereby achieving automated management of our streamers in dispersed geographical locations

to improve our operational efficiency. Particularly, as part of our efforts to expand live streaming in the

e-commerce genre, we plan to leverage the demographical, transactional and behavioral data relating to the

fan base of our streamers and implement targeted advertising and sales campaigns in the form of sponsored

live streaming by pushing personalized recommendations to the fans of our e-commerce streamers. We also

intend to make our technology system accessible to brand owners and third-party merchants to allow

seamless pairing of their sales and marketing requests and our streamers.

OUR BUSINESS MODEL

We specialize in streamer incubation and management, online entertainment content production and

distribution, and content marketing. We believe we play a unique, indispensable role in China’s rapidly

evolving live streaming market by connecting streamers with live streaming platforms.

We conduct business operations on each live streaming platform as a streamer association to

institutionalize streaming activities for profit. This corporatized streamer association model has become

critical in facilitating the development of China’s live streaming industry in response to the concerns of live

streaming platforms over the costs in managing a multitude of individual streamers and the requests of

individual streamers for “safety in numbers” against the volatile market conditions and intense market

competition. A corporatized streamer association may rapidly scale up and continue to maintain a viable

size of fan base by leveraging the popularity of its leading streamers, the comprehensiveness of its content

coverage, and the expertise and professionalism of its operation team in content production, streaming

grooming and resource allocation.

On the streamer side, we have developed a sophisticated streamer grooming system to discover, train

and promote streamers. We also engage in content production to retain more control over the content our

streamers deliver to their fans, which allows us to help streamers improve their shows, and at the same time,

allows us to quickly replicate successful cases and scale up our repertoire of viable streamers. In addition,

we endeavor to increase our streamers’ influence beyond live streaming by offering them various

commercial opportunities, such as e-commerce sales and marketing and offline promotional events.

On the live streaming platform side, we congregate our streamers in live streamer associations we

establish and centrally manage business affairs between streamers and platforms. Leveraging our expertise

in discovering, training, managing and monitoring streamers, as well as our insight into the user preferences

of each platform, we have maintained stable business relationship with major live streaming platforms as a

constant source of viable streamers and high-quality content, which in turn helps those platforms increase

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their popularity among users and, consequently, their market share. Our collaboration with partnered live

streaming platforms also alleviates them from having to incur considerable operational costs so that they

can allocate more resources to their core business activities, according to the F&S Report.

The following diagram sets forth a simplified presentation of our major business operations:

StreamersLive Streaming Platforms

Our Company

Conducting streamingactivities as a member of ourstreamer association

• Establishing a streamer associationon each platform

• Recruiting, managing andpromoting streamers

• Incubating and promotingstreamers

• Assisting in content production• Procuring online and offline

commercial opportunities

Viewers

Purchasing and sendinggifts to our streamers, fromwhich we share a portionas our revenues

We partner with live streaming platforms by entering into a cooperation agreement which governs

terms of collaboration. Streamers perform on our partnered live streaming platforms as a member of stream

associations we register with the platforms under various arrangements. See “— Our Partnered Live

Streaming Platforms” and “— Our Streamers” for details.

We primarily generate revenues from sharing a portion of the gross billings from the sales of virtual

items attributed to our streamers on live streaming platforms. Some live streaming platforms settle payment

with us, and we then divide the earnings with our streamers. Some other live streaming platforms choose to

settle payments with us and our streamers separately. See “— Our Business and Revenue Sources —

Revenue Sharing with Live Streaming Platforms and Streamers” for details.

OUR BUSINESS AND REVENUE SOURCES

Revenue Sharing with Live Streaming Platforms and Streamers

We establish streamer associations on partnered live streaming platforms to institutionalize streaming

activities for profit and enable our streamers to perform under the brand name of our streamer associations.

Our streamers and their viewers interact in various ways on live streaming platforms, including oral chat

and private messages or public and real-time danmaku. Our general entertainment streamers may also sing

or perform at the request of the viewers. Our gaming streamers interact with viewers by teaming up to play

games, sharing game-playing tips, discussing strategies and explaining in-game moves. Our e-commerce

streamers demonstrate the products they recommend by, for example, applying a makeup product to show

its effects. In addition, our streamers may co-stream with their viewers to appear more charismatic and

approachable to the audience and enhance their entertaining value and popularity.

The synchronicity and interactivity of live streaming enable viewers to co-experience and immerse

themselves through their participation in live streaming. While there are many fun and entertaining ways for

them to participate in live streaming, the most prevalent way is for viewers to purchase virtual items offered

by live streaming platforms and send them to streamers as gifts to showcase their affection or support

toward the streamers and gain peer recognition among other viewers. These virtual gifts mimic real-life

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goods and luxuries ranging from flowers to yachts and rockets to differentiate their rareness and value, and

float across the screen of the streaming room with special visual and/or sound effects, which makes gifting

performative and entertaining. Gifting changes the one-way input from a streamer to the two-way

interaction by the streamer and many viewers. The gifting of one viewer would entertain all other viewers in

the same streaming room and entice them to gift or perform together.

We encourage streamers to stimulate and involve their viewers to maximize the chances of gifting and

produce entertaining user-generated content. For example, our general entertainment streamers may hold a

singing contest among their viewers in live streaming, and the spectators will vote for winners through

gifting. Similarly, our gaming streamers may hold a tournament with other gaming streamers, and the

viewers can send gifts to determine the prize and clan members.

When our streamers receive virtual items, live streaming platforms will automatically convert the

virtual items into the corresponding amount of virtual currencies, which will be credited into the accounts of

our streamer associations and can be exchanged into Renminbi under the revenue sharing arrangements

among us, live streaming platforms and streamers. We generate a substantial portion of our revenues from

sharing a portion of the gross billings from the sales of virtual items attributed to our streamers on live

streaming platforms. In 2017, 2018 and 2019, revenue generated from the revenue sharing with live

streaming platforms and streamers were RMB48.5 million, RMB70.1 million and RMB75.8 million,

respectively, representing 96.6%, 94.0% and 91.4% of our total revenue for the same periods, respectively.

Live streaming platforms determine the revenue sharing ratio as a percentage of the gross billings

from the sales of virtual items attributed to our streamers in their standard platform policies. We typically

agree to adhere to the standard platform policies by signing up our streamer associations with the live

streaming platforms. Varying from one platform to another, we are ultimately entitled to record as our

revenue 3% to 25% of the gross billings from the sales of virtual items attributed to our streamers. With

certain live streaming platforms, the revenue sharing ratio is tiered based on the aggregate gross billings

attributed to our streamer associations. We may also share with streamers the incentive fees paid by live

streaming platforms in recognition of their KPI fulfillment, such as targeted streaming hours or gross

billings. In addition, we sometimes receive commission from live streaming platforms in recognition of the

high retention rate of streamers registered in our streamer associations.

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Some live streaming platforms settle the aggregate payments with us on a monthly basis. We then

divide the earnings with our streamers pursuant to the percentage set forth in our agreements with them. The

settlement of the payments to our streamers is conducted through third-party labor service providers. Some

other live streaming platforms choose to settle payments with us and our streamers separately based on the

agreed percentage between us and our streamers, in which case they may stipulate a minimum revenue

sharing percentage for the streamers in their platform policies. The following diagram illustrates the typical

revenue sharing arrangement among us, live streaming platforms and our streamers.

Gross billings from sales

of virtue gifts attributed

to our streamers

Live streaming

platforms

Viewers

Our streamers Our revenue

Our Company

(2)

(1)

(3)

(4)

“ ” denote the flow of funds. and “ ”

(1) Viewers purchase virtual items on live streaming platforms and send them to streamers as gifts. Gross billings of sales ofvirtual gifts received by streamers in our streamer associations will be accredited to them.

(2) Based on the effective revenue sharing ratio, some live streaming platforms share a portion of such gross billings with ourstreamer associations (including the aggregate amount attributable to us and our streamers) and settle the aggregate paymentswith us.

(3) We then divide the earnings with our streamers pursuant to the revenue-sharing arrangements set forth in our agreements withthem, and recognize our portion as revenue.

(4) Some live streaming platforms choose to settle payments with us and our streamers separately based on the agreed revenue-sharing arrangements between us and our streamers.

We also partner with certain top streamers to jointly represent, develop and manage some streamers

through our streamer associations, which provides an additional channel to cost-effectively enlarge our

streamer pool. We typically enter into a cooperation agreement with the partnered streamers under this

arrangement, pursuant to which we and the partnered streamers share the profits attributed to the jointly

represented streamers in roughly equal shares. We may also selectively conduct the joint representation

model with third-party companies, with substantially similar business arrangements between us. See “—

Our Streamers— Joint Representation of Streamers” for details. In 2017, 2018 and 2019, we generated

9.6%, 17.0% and 17.3% of our total revenue from the joint representation model, respectively.

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Short Videos

We have developed an in-house content creation capability and set up various social media channels,

such as WeChat public accounts and Weibo, to better capitalize on the earning potential of our streamers,

especially gaming streamers. We help them produce and distribute video clips of commentaries on

gameplays or gaming strategy explanations. We also attract short video creators to join our MCNs and

develop short videos and incubate IP content. We primarily generate revenue from licensing our self-

produced short video contents to short video and social media platforms which consists of variable incentive

fees based on the number of video views on such platforms. In 2017, 2018 and 2019, we generated revenue

of nil, RMB2.6 million and RMB5.0 million, respectively, representing nil, 3.4% and 6.1% of our total

revenue for the same periods, respectively.

Other Revenue Sources

We continuously expand our monetization channels. We cooperate with e-commerce platforms and

third-party merchants to offer sponsored product sales and advertising services through short videos and

live streaming, covering a wide range of products, such as games, apparel, jewelry, and beauty and skincare

products. We share a commission from the product sales or charge advertising fees and brand endorsement

fees from brand owners and third-party merchants based on the size of our streamers’ fan base or the

number of views of the relevant short videos. We also share with our streamers a portion of their income

generated from offline performing activities. Furthermore, we earn transfer fees by transferring streamers to

third-party streamer associations.

OUR PARTNERED LIVE STREAMING PLATFORMS

We pride ourselves on our longstanding collaboration with a comprehensive league of streaming

platforms in China, allowing us to become one of the few streamer associations with access to the largest

user base in China’s live streaming market, according to the F&S Report. As of December 31, 2019, we

maintained trusted business relationship with 18 major live streaming platforms in China, many of which

have been our partners for more than three years.

We and live streaming platforms generally enter into a cooperation agreement, which typically

includes the following major terms.

• Term. Our collaboration typically has a term ranging from one to four years and will renew for

the same length of period upon expiration of the original term if no party indicates otherwise.

During the Track Record Period, we were generally able to renew our cooperation agreements

with live streaming platforms on the same or similar terms.

• Rights and obligations. We register a streamer association on each platform to enable our

streamers to perform on that platform, and take charge of their streaming activity planning,

operational management and development of live streaming techniques. We must include a

minimum number of streamers in our streamer association, the size of which is subject to

adjustment at the discretion of the platform. We have discretion over the promotion, marketing

and branding of the member streamers. We must ensure that our streamers actively participate in

various platform events, such as tournaments, carnivals and streamer popularity contests. Live

streaming platforms will provide technical support for our streamers’ audio and video

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performances on their platforms while retaining the exclusive rights to such performances. Live

streaming platforms also have the rights to regulate our streamers’ activities and unilaterally

modify their platforms’ features and terms of use.

• Revenue-sharing arrangements. We share a portion of the gross billings from the sales of virtual

items on live streaming platforms based on a pre-determined ratio set forth in their respective

platform policies. See “— Revenue Sharing with Live Streaming Platforms and Streamers.”

Live streaming platforms typically settle payments with us on a monthly basis.

• Exclusivity. Our agreements with most live streaming platforms contain exclusivity provisions

prohibiting our streamers from performing on or for competing platforms without their prior

written consent. In addition, some platforms require us not to make similar business

arrangements with third parties for two years following the termination or expiration of the

agreement.

• Termination. Either party may terminate the agreements if the other party breaches and fails to

rectify upon notification. In certain cases, however, live streaming platforms may immediately

terminate the agreements unilaterally upon certain events of default, under which circumstance

we would be liable for liquidated damages and actual economic loss incurred by the platforms.

OUR STREAMERS

As of April 30, 2020, we had approximately 29,300 streamers registered in our streamer associations,

with over 1,000 exclusively contracted streamers. The following table sets forth a breakdown of our

streamers by streaming genres as of April 30, 2020.

As of April 30, 2020

General entertainment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,700Gaming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,600Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,300

Some of our partnered live streaming platforms, such as YY Live and Huya Live, operate their

platforms on both PC clients and mobile apps, while the others, such as Douyin and Now Live, operate

exclusively on mobile apps. Accordingly, our streamers may stream primarily through PC clients on some

platforms and through mobile apps on the others, based on which we divide our streamers broadly into

PC-based streamers and mobile-based streamers. According to the F&S Report, PC-based streamers are

more likely to attract a large pool of dedicated, wealthy patrons with a high level of user engagement, and

form a relatively closed community with their viewers. It typically takes longer time to incubate a viable

PC-based streamer compared with their mobile-based counterparts, as the former requires more hardcore

streaming techniques. By contrast, the community for mobile-based streamers and their viewers is usually

more open, accessible and diversified, primarily due to a relatively low entry barrier for streamers and the

high mobility of viewers. We have adopted an all-round development strategy with differentiated

operational tactics. On the PC side, we focus on cultivating KOLs with significant monetization potential to

increase our long-term profitability and enhance the influence of their fan base. On the mobile side, we

focus on rapidly enlarging our streamer pool and generating quick returns to ensure stable cash flows.

We identify potential and other viable streamers via various online and offline channels. See

“— Streamer Grooming System — Streamer Discovery” for details. For all streamers seeking to join our

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streamer associations, we send a binding e-invitation through our streamer association account on a specific

live streaming platform following a consensus on cooperation terms with them, which contains, among

other things, our revenue sharing ratio with the specific streamer. By accepting our e-invitation, the streamer

undertakes a series of obligations, including not to transfer to other platforms or streamer associations

without obtaining our prior consent. Streamers who are dissatisfied with their performance on the originally

chosen platform may seek to terminate our cooperation and transfer to other streamer associations on other

live streaming platforms. Leveraging our comprehensive coverage of partnered streaming platforms in

China, we typically propose to assist them in rotating among different live streaming platforms until they

settle down on a platform that best befits their personalities or talents. During the Track Record Period, we

did not suffer any material losses or negative financial impact on our revenues due to mass departure of

streamers registered in our streamer associations.

We also make a variety of arrangements with our streamers in addition to the e-invitation. We

selectively enter into an exclusive talent agency agreement with a limited number of streamers with great

potential, pursuant to which we retain the exclusive right to monetize their fan influence. We also partner

with certain top streamers to jointly represent, develop and manage some streamers through our streamer

associations, which serves as an additional and replicable channel to cost-effectively enlarge our streamer

pool and enhance partnered top streamers’ loyalty to us. In addition, some streamers join us pursuant to our

collaboration with third-party talent agencies as a cost-effective way to expand our streamer pool without

incurring additional operational costs.

Exclusive Representation of Streamers

We selectively enter into an exclusive talent agency agreement with a limited number of streamers

with great potential. As of April 30, 2020, we exclusively contracted with over 1,000 streamers. The talent

agency agreement typically includes the following major terms.

• Term. The agreements have a term ranging from one to 20 years and will renew for the same

length of period upon expiration of the initial term if no party indicates otherwise in writing.

• Rights and obligations. We retain the exclusive rights to monetize our streamers’ influence and

use their portrait rights, name rights and other intellectual property rights. We also require our

streamers to conduct live streaming for no less than four hours per day, accept our stipulations

on content and other operational arrangements, and comply with laws and regulations as well as

the terms of use of live streaming platforms. We are responsible for promoting our streamers and

obtaining potential business opportunities for them.

• Revenue-sharing arrangements. We share a portion of the gross billings from the sales of virtual

items on live streaming platforms attributed to our streamers based on a pre-determined ratio

varying from 3% to 25%. See “— Revenue Sharing Arrangements with Live Streaming

Platforms and Streamers.” To motivate our streamers, we may surrender part of our profits and

grant them tiered bonuses according to their performance. We are also entitled to share a portion

of their income from other online and offline commercial opportunities, such as advertising,

sponsored product sales and endorsements, and performing events.

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• Non-compete clause. Our exclusive talent agency agreement typically contains a standard

non-compete clause to prohibit our streamers from engaging in live streaming-related activities

for three years upon termination of the agreement.

• Termination. If our agreement is terminated due to breach on the part of our streamer, then he or

she typically must pay us stipulated liquidated damages.

Some live streaming platforms require a tripartite cooperation agreement to be entered into among us,

the platform and the streamer, with substantially similar rights and obligations. Some live streaming

platforms, instead, require to enter into a cooperation agreement and a talent agency agreement with us and

the streamer, respectively, to streamline the revenue sharing process. See “Risk Factors — Risks Relating to

Our Business and Industry — If we fail to retain and grow our streamer pool, especially our top streamers,

our business, results of operations and financial condition could be materially and adversely affected.”

Joint Representation of Streamers

We also partner with certain top streamers to jointly represent, develop and manage some streamers

through our streamer associations. The partnered streamers are typically responsible for recruiting and

nurturing apprentice streamers, leveraging their popularity and experience. We provide them with guidance

and support in various aspects, including instruction on content creation, provision of promotion resources,

and procurement of commercial opportunities. Joint representation of streamers provides an additional and

replicable channel to cost-effectively enlarge our streamer pool and exploit the popularity and the fan base

of the partnered top streamers, which also serves to increase their career lengths and enhance their loyalty to

us.

Our talent agency agreement with the jointly represented streamers contains rights and obligations

substantially similar to our other streamers. We generally enter into a cooperation agreement with the

partnered streamers, which typically includes the following major terms.

• Term. The agreements typically have a term of five years and will remain in force as an ongoing

agreement if no party indicates otherwise in writing until an advance notice of termination is

given by either party.

• Rights and obligations. We add the jointly represented streamers into our streamer association

formed on a specific partnered live streaming platform pursuant to the agreement and are

exclusively responsible for handling live streaming-related matters for such streamers. We may

establish a jointly operated streaming channel under the specific streamer association and

accommodate these streamers to facilitate their management and expedite the settlement process.

Our partnered streamers are entitled to review streaming performance data of these jointly

represented streamers through our streamer association account, such as number of viewers and

streaming hours, and account balance of virtual currencies converted from their earned virtual

items. Our partnered streamers must ensure that the jointly represented streamers abide by our

guidance and instructions, accept our stipulations on content and other operational arrangements,

and enter into a talent agency agreement with us. We covenant to prioritize the promotion of the

jointly represented streamers. We and our partnered streamers jointly retain the exclusive rights

to monetize the streamers’ influence and use their portrait rights, name rights and other

intellectual property rights.

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• Profit split. We and our partnered streamers share the distributable profits attributed to the

jointly represented streamers in roughly equal shares.

• Termination. If our agreement is terminated due to breach on the part of the partnered streamer,

then he or she typically must pay us stipulated liquidated damages.

In addition to our top streamers, we may selectively conduct the joint representation model with third-

party companies, with substantially similar business arrangements between us.

Collaboration with Third-party Talent Agencies

We from time to time admit streamers from third-party talent agencies into our streamer associations

as a cost-effective way to expand our streamer pool. Under such circumstances, we enter into a cooperation

agreement with the third-party talent agencies, pursuant to which the third-party talent agencies undertake to

proactively recommend streamers to join our streamer associations. We assess and admit only qualified

candidates, and charge service fees for our management services, training courses and promotional support

based on the gross billings from the sales of virtual items on live streaming platforms attributed to the

admitted streamers. We have a preemptive right to laterally buy out admitted streamers from the third-party

talent agencies during the cooperation term.

Our Top Steamers

During the Track Record Period, our business growth depended, in part, on a limited number of top

streamers. In 2017, 2018 and 2019, our top five streamers, all of whom were our exclusively contracted

streamers, contributed 29.1%, 32.2%, and 19.9% of our total revenue, respectively. See “Risk Factors —

Risks Relating to Our Business and Industry — If we fail to retain and grow our streamer pool, especially

our top streamers, our business, results of operations and financial condition could be materially and

adversely affected.”

We believe that the apparent concentration of top revenue-generating streamers during the Track

Record Period was primarily due to the following key factors.

• As an industry norm, user traffic on live streaming platforms is relatively concentrated on the

top streamers. Accordingly, top streamers in each of our streamer associations generally attract

more viewers on the platform compared to their peers.

• We have strategically focused on cultivating general entertainment streamers to capitalize on the

largest segment of China’s live streaming market since our inception in 2016. In 2019, all of our

top five streamers were general entertainment streamers, including the No.1 streamer in the

annual tournament hosted by YY Live.

• We have deliberately placed top or successful streamers in our major streamer associations to

make headlines on our partnered live streaming platforms, thereby procuring viewers to follow

our streamer associations and allowing our novice streamers in these associations to acquire fan

base quickly. We have also invested relatively more resources in promoting KOL candidates to

increase our long-term profitability.

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We consider that our business model is sustainable despite the apparent concentration of a limited

number of top streamers, as we have taken various measures to mitigate our risk exposure, including the

following.

• We continuously endeavor to reduce the streamer concentration, including to cost-effectively

grow our streamer pool, especially our active streamers. In particular, we partner with certain top

streamers under our joint representation model, leveraging their popularity and experience to

recruit and nurture apprentice streamers to cost-effectively enlarge our streamer pool. Our

average monthly active streamers increased from approximately 980 in 2017 to approximately

1,900 in 2019. The revenue contribution of our top five streamers decreased from 29.1% in 2017

to 19.9% in 2019.

• For each major streaming genre that we cover, we also have several top streamers that are in

friendly competition with each other to avoid the monopoly by any single streamer.

• We continuously diversify our monetization channels, focusing on those that do not heavily

depend on individual streamers. For example, we tapped into the short video market in early

2018, generating revenue primarily based on the number of video views from short video and

social media platforms. We also launched our content marketing services, which emphasize on

combining the popularity of our streamers with professionally generated content, instead of

relying on the charisma of individual streamers.

Our top streamers demonstrated a high level of loyalty during the Track Record Period. For example,

approximately 88% of our top streamers who generated gross billings of more than RMB500,000 in 2018

remained as our engaged streamers in the fourth quarter of 2019. During the Track Record Period, we did

not suffer material losses or negative financial impact on our revenues due to the departure of any top

streamers. More importantly, we believe that the success and viability of our business model are

underpinned by our ability to continuously cultivate commercially viable streamers, which was made

possible by our proven and sophisticated streamer grooming system, rather than the exploitation of a limited

number of existing streamers. See “— Streamer Grooming System” for details.

STREAMER GROOMING SYSTEM

We are laser-focused on transforming amateur and mediocre streamers into internet celebrities. We

have established a comprehensive and sophisticated streamer grooming system as our core competence,

covering streamer discovery, training and promotion, as well as content production and monitoring. Our

proven streamer grooming system efficiently and effectively enables novice streamers to gain proficiency

and popularity. For example, in 2019, approximately 43.1% of all newly exclusively contracted novice

streamers increased their average monthly gross billings by over 20% compared to their gross billings in the

first month, and approximately 55.0% of all newly exclusively contracted streamers increased their average

monthly gross billings by over 20% compared to their average monthly gross billings in the same year

before entering into the exclusive contract with us. In addition, the number of our top streamers generating

annual gross billings of more than RMB500,000 increased from over 130 as of December 31, 2017 to over

320 as of December 31, 2019. It also allows us to quickly replicate successful cases and scale up our

repertoire of viable streamers. In this regard, we could further profit from our streamer grooming system by

transferring qualified streamers to third parties for a transfer fee.

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Streamer Discovery

We conduct talent search via various online and offline channels. We identify prospective streamers

via social medial platforms. We place our advertisements on recruiting websites, as well as in traditional

media at outdoor advertising venues that could easily attract the attention of prospective streamers, such as

public transportation terminals. We conduct campus events and cooperate with student associations in

colleges. We sometimes attract prospective streamers that we believe have strong potential by paying an

upfront sign-on fee. We also acquire streamers from third-party talent agencies or streamer associations by

paying a transfer fee. In addition, we partner with certain top streamers to efficiently enlarge our viable

streamer pool by leveraging the popularity and streaming experience of those top streamers.

We capitalize on our extensive experience in China’s live streaming industry to identify and recruit

promising streamers. We apply various quantitative and qualitative metrics, including, among others, a

candidate’s communication skills, physical appearance, distinctive charisma, personality, special talent and

work attitude, to identify streaming potential. We continuously screen our novice streamers with the same

set of metrics on a biweekly basis to identify KOL candidates.

Leveraging our streamer discovery capability, our streamer pool increased rapidly during the Track

Record Period. Our average monthly engaged streamers increased from over 3,600 in 2017 to over 4,000 in

2019, and our average monthly active streamers increased from approximately 980 in 2017 to

approximately 1,900 in 2019. Our exclusively contracted streamers increased from over 400 as of

December 31, 2017 to over 1,000 as of December 31, 2019.

Streamer Training

We invest significant resources to incubate and train our streamers. We offer a series of online and

offline training courses on make-up, styling and physique, live streaming channel operation, content

creation, and communication techniques and manners, delivered by both our in-house experts and third-

party professionals. In addition, our operational staff continuously impart their knowledge and experience

accumulated during the course of their daily work to streamers through “on-the-job” training. For example,

they may, on a weekly basis, assist certain streamers, especially those struggling to perform well, in setting

up the streaming topic for each day of the week, such as childhood stories or unrequited romance, and

designing entertainment programs, interactive games and follow-up tasks with fans pertinent to the topic.

We also provide streamers with guidance on improving their live streaming performances based on

streaming statistics acquired from live streaming platforms, including peak number and cumulative number

of viewers in the room, number of chats and comments, average time watched per user and number of

virtual gifts received.

It could take up to several months for a novice streamer to develop his or her personal style and build

up a viable fan base. During our training courses, we seek to help them draw out their personality traits,

establish self-confidence and further their understanding of the live streaming industry. We also deploy a

dedicated team of deskside support to monitor how novice streamers interact with viewers during their

streaming and provide practical guidance on matters ranging from background settings, conversational

skills, make-up and dressing tips, to the formats and topics of their streaming content. Moreover, novice

streamers must discern, often on a trial-and-error basis, the demographics that they appeal to the most. To

that end, leveraging our comprehensive live streaming platform coverage, we have made it possible for our

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streamers to rotate among different streaming platforms until they settle down on a platform that best befits

their personalities or talents and reinvigorate the sense of excitement among the fans across different

platforms.

Streamer Promotion

We tailor-make our promotion strategies for each streamer to groom their popularity among their fans.

We provide personalized positioning suggestions to help our streamers effectively respond to the ever-

changing market preferences. We utilize both online and offline channels to enlarge our streamers’ fan base

and social media influence, by formulating homepage recommendations on live streaming platforms, getting

favorable media coverage, releasing a single for the streamers or trailers and b-roll of their performance, and

organizing live house performance and fan meetings. We require our streamers to actively participate in

tournaments, carnivals and streamer popularity contests organized by our partnered live streaming

platforms. We also encourage our streamers to participate in charity activities to increase positive public

exposure.

We from time to time cross-promote our novice streamers through multi-party live streaming and

streamer PK, where a novice streamers will be paired with a top streamer to engage in conversation,

perform songs or other talent shows together, or compete against each other. In this way, the novice

streamers could benefit from the top streamers’ viewer traffic and popularity, and cultivate their own fan

base more cost-effectively. In addition, we conduct cross-promotion among different live streaming genres

by pairing up a general entertainment streamer with a gaming streamer to collectively leverage each other’s

fan base.

In addition, we help our streamers maintain social media accounts to strengthen their bonding with

fans outside the show rooms. We also conduct content marketing for our streamers by releasing trailers or

b-roll of our streamers’ performance on various video-sharing platforms to boost viewer traffic.

Content Production and Monitoring

Streamers must continuously deliver new, high-quality, and trendy content to retain and grow their fan

base. As of the Latest Practicable Date, we assembled a content production and operation team of 93

members, focusing on producing professionally designed content that caters to the taste of their fans. We

provide comprehensive support along the entire content production process. Depending on the platform

where the content to be delivered, our team members will advise streamers on topics and formats,

background music selection, story producing, script creation, supporting graphics, and background setting

and lighting, and assist in video editing and final review, if applicable.

In addition to routine streaming and performance, we design special programs for our streamers based

on their personality, such as contests among aggressive streamers with escalating competitive “tension” to

boost viewer traffic and incite their fans to back up each party through gifting. We also consider other

factors in producing professionally-designed content, including seasonality and recent trending searches.

For example, during the spring festival travel season, our streamers may conduct outdoor streaming at local

railway stations to interview migrant workers and sponsor unaccomplished wishes from selected workers

with their gifting viewers.

We have implemented internal rules and monitoring measures to regulate our streamers’ activities and

avoid negative publicity and administrative actions. We organize regular ongoing training sessions for both

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streamers and our operational staff. In addition, our deskside support team provide real-time feedback to our

novice streamers, and may even suspend their activities and implement punitive measures upon identifying

potential improper content or other irregularities. Our streamers agree to indemnify us for all damages

arising from their improper streaming activities.

Streamer Retention

We believe our market leading position and comprehensive platform coverage contribute to our ability

to retain our existing streamers. We also take steps to mitigate the risk of losing our streamers, especially

top ones, to our competitors. For example, we partner with certain top streamers to jointly represent,

develop and manage some streamers through our streamer associations and share with them profits, which

we believe is an effective way to enhance their loyalty to us. Our streamers, especially top streamers,

demonstrated a high level of loyalty during the Track Record Period. For example, approximately 88% of

our top streamers who generated gross billings of more than RMB500,000 in 2018 remained as our engaged

streamers in the fourth quarter of 2019.

For each streaming genre that we cover, we have several top streamers that are in friendly competition

with each other to avoid the monopoly by any single streamer, and at the same time, attract viewers who

may be watching streaming shows at different times of the day. During the Track Record Period, we did not

suffer material losses or negative financial impact on our revenues due to the departure of any streamers.

OUR SHORT VIDEO BUSINESS


leveraging a synergy with our live streaming business. In China’s booming short video market, short video

platforms and social media platforms increasingly collaborate with MCNs to acquire KOLs and content

offerings to grow and monetize their traffic. Those platforms generally have certification requirements for

MCNs, such as the entity’s qualification and the number and popularity of the entity’s signed short video

creators. MCNs typically assist short video creators in areas such as video production, content

programming, promotion and audience development. More importantly, MCNs facilitate the monetization

of the short video market by connecting KOLs with brand owners, merchants and e-commerce platforms.

As of April 30, 2020, we established six certified MCNs on five major short video platforms in China,

including Douyin, Kuaishou, Jinri TouTiao, Tencent Open Media and Bilibili. We provide these short video

platforms with professionally produced content. These platforms also order from us themed short videos to

which they will retain exclusive rights.

We discover potential short video creators and assist them in character design and content topic

selection based on their personalities and characteristics. We support them in footage gathering, content

programming and video production, and help them distribute and promote their content through a variety of

distribution channels and expand their fan base, thereby transforming them into KOLs to facilitate the

monetization of their popularity. As we become a source of high-quality content for distribution channels,

we also benefit from their view traffic. We take pride in our production capability to create high-quality

contents with high production, powerful and diversified distribution channels, and extensive promotional

resources and monetization experiences accumulated from our live streaming business.

As of April 30, 2020, we had over 1,400 short video creators registered in our MCNs with an

aggregate of over 55 million fans, and produced and distributed an aggregate of over 89,000 short videos,

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which collectively generated over 8.8 billion video views and 257 million likes. We primarily monetize the

popularity of our short videos by receiving incentive fees based on the number of video views from short

video platforms and social media platforms. We also collaborate with brand owners and third-party

merchants to create short videos with embedded advertisements and charge advertising fees. We typically

share 70% of these fees with short video creators, subject to case-by-case adjustment. Certain short video

creators, also being our streamers, may surrender their shares in these fees in exchange for preferential live

streaming-related resources. As we continuously expand our short video business, we are exploring other

means to realize on short video content through knowledge payments and e-commerce.

INVESTMENT IN FILM AND TELEVISION SERIES PRODUCTION

We have invested, and will continue to invest in, production of films and television series, which we

consider complementary to our existing business by driving the all-round development of our streamers. To

this end, our investment is generally conditional on the involvement of our streamers in the film or

television series, which allows us to boost our streamers’ presence in the online entertainment market and

enhance their loyalty to us. In addition, third-party streamers could be attracted to us for such resources,

opportunities and career advancement prospects, allowing us to enlarge our streamer pool effectively.

In making the investment decision, we generally take into consideration the genre and topic of the

target project, the background of the production team and other investors of the project, the feasibility of the

production plan, and our expected investment returns. The following table sets forth certain key information

of our primary investment in films and television series as of the Latest Practicable Date.

Investment Project GenreTime of

Investment

InvestmentAmount and

Status

Project Status asof the Latest

Practicable Date

ExpectedInvestmentReturn

Hulunbuir City(呼侖貝爾城)

Drama film(Historical)

August 2017 RMB3 million(fully paid)

Released inAugust 2019 andwas awarded theBest NewDirector in 22ndShanghaiInternationalFilm Festival (第廿二屆最受傳媒關注新人導演獎)

19.1% of the totalprofits

Our NationalSouthwestAssociatedUniversity (我們的西南聯大)

Drama series(Historical)

December 2018 RMB10 million(fully paid)

Expect to bereleased inOctober 2020

fixed profits ofRMB650,000plus pro-rataprofits (inproportion to theratio of ourinvestment ofRMB5 million tothe totalinvestmentamount)

TV series A Drama series(Crimesolving)

January 2019 RMB5 million(of whichRMB2 millionhad been paid)

Development ofthe script

6.3% of the totalprofits

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In 2017, 2018 and 2019, we recorded fair value gains on investment in film and television series

production of RMB0.3 million, RMB0.9 million and RMB3.3 million, respectively.

SALES AND MARKETING

We believe brand recognition is critical to our ability to establish and retain business collaboration

with live streaming platforms, and our general marketing efforts are designed to enhance our brand

awareness and reputation among them. We primarily attract new platforms with testimonials of our services

from our partnered platforms and our influence in the live streaming industry. We also proactively approach

newly emerged live streaming platforms leveraging our accumulated resources and connections. We take

measures to maintain close rapport with live streaming platforms, primarily through the refinement of our

streamers’ performance to expand the platforms’ user base.

We believe word-of-mouth marketing has helped us to achieve, and will continue to drive, organic

growth of our streamer pool. We also implement various marketing and promotional measures to recruit and

promote streamers. See “— Streamer Grooming System” for details.

OUR CUSTOMERS

Our customers primarily include live streaming platforms. We generated revenue of RMB43.4

million, RMB46.8 million and RMB38.3 million from the collaboration with our largest customer,

Company A, in 2017, 2018 and 2019, respectively, representing 86.5%, 62.7% and 46.1% of our total

revenue for the same periods, respectively. In the same periods, we generated revenue of RMB48.1 million,

RMB69.2 million and RMB76.1 million from the collaboration with our top five customers, representing

95.8%, 92.7% and 91.7% of our total revenue, respectively. In addition, substantially all of our top five

streamers in terms of revenue contribution were streaming on Company A in the same periods, respectively.

As such, we may be subject to concentration and counter-party risks associated with our top customers. See

“Risk Factors — Risks Relating to Our Business and Industry — We were exposed to concentration and

counter-party risks of heavy reliance on a limited number of live streaming platforms during the Track

Record Period. Operators of these platforms may curtail or inhibit our ability to use the platforms, or there

may be material disruptions of the platforms.”

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The following table sets forth certain key information of our top five customers during the Track

Record Period.

Customer Background and principal business

Approximateyears ofbusiness

relationshipas of theLatest

PracticableDate (Years)

Revenuesfrom our

collaborationwith thecustomer(RMB inmillions)

Revenuesfrom our

collaborationwith the

customer asa percentageof our totalrevenue

For the year ended December 31, 2017

Company A(1) Company A is a NASDAQ-listed companyheadquartered in Guangzhou, primarily operating alive streaming social media platform with a varietyof content offering.

four 43.4 86.5%

Company B Company B was a private company headquarteredin Guangzhou, primarily operating a live streamingplatform with a focus on music content, and hasbecome a variable interest entity of a NYSE-listedcompany.

four 1.7 3.4%

Company C(2) Company C is a NYSE-listed companyheadquartered in Guangzhou, primarily operating aleading gaming live streaming platform in Chinaand has extended the content offering on itsplatform to other entertainment genres.

three 1.6 3.2%

Company D Company D is a private company headquartered inHangzhou, primarily operating a generalentertainment live streaming platform.

four 1.1 2.3%

Company E Company E is a private company headquartered inBeijing, primarily engaged in streamer agency andperformance brokerage services.

one 0.2 0.4%

Total — — 48.0 95.8%

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Revenuesfrom thecustomer(RMB inmillions)

Revenuesfrom thecustomer

as apercentage

of ourtotal

revenue


Company A(1) Company A is a NASDAQ-listed company headquarteredin Guangzhou, primarily operating a live streaming socialmedia platform with a variety of content offering.

four 46.8 62.7%

Company C(2) Company C is a NYSE-listed company headquartered inGuangzhou, primarily operating a leading gaming livestreaming platform in China and has extended the contentoffering on its platform to other entertainment genres.

three 12.7 17.0%

Company F Company F is a private company headquartered inBeijing, primarily operating a mobile live streaming andsocial network platform.

two 4.7 6.3%

Company G(2)(3) Company G is a HKEX-listed investment holdingcompany, with multiple subsidiaries operating a variety ofbusinesses, such as value-added services including onlinegames and social networks, fintech and business services,online advertising and others.

three 2.6 3.5%

Company H(4) Company H is a private company headquartered inBeijing, which operates mobile short video sharing andlive streaming platforms.

two 2.4 3.2%

Total — — 69.2 92.7%

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Revenuesfrom thecustomer(RMB inmillions)

Revenuesfrom thecustomer

as apercentage

of ourtotal

revenue


Company A(1) Company A is a NASDAQ-listed company headquarteredin Guangzhou, primarily operating a live streaming socialmedia platform with a variety of content offering.

four 38.3 46.1%

Company G(2)(3) Company G is a HKEX-listed investment holdingcompany, with multiple subsidiaries operating a variety ofbusinesses, such as value-added services including onlinegames and social networks, fintech and business services,online advertising and others.

three 15.5 18.6%

Company C(2) Company C is a NYSE-listed company headquartered inGuangzhou, primarily operating a leading gaming livestreaming platform in China and has extended the contentoffering on its platform to other entertainment genres.

three 15.4 18.6%

Company F Company F is a private company headquartered inBeijing, primarily operating a mobile live streaming andsocial network platform.

two 4.5 5.4%

Company H(4) Company H is a private company headquartered inBeijing, which operates mobile short video sharing andlive streaming platforms.

two 2.5 3.0%

Total — — 76.2 91.7%

Note: Our customers referred here are determined by the flow of revenue stream.

(1) During the Track Record Period, we cooperated with two subsidiaries of Company A in relation to its live streaming platform.

(2) As of the Latest Practicable Date, Company G, through its wholly-owned subsidiaries, had become a controlling shareholderof Company C.

(3) During the Track Record Period, we cooperated with three subsidiaries of Company G in relation to its two live streamingplatforms.

(4) During the Track Record Period, we cooperated with two subsidiaries of Company H in relation to its two short video sharingand live streaming platforms.

As of the Latest Practicable Date, none of our Directors, their associates or any shareholders which, to

the best knowledge of our Directors, owned more than 5% of our issued share capital as of the Latest

Practicable Date, had any interest in any of our five largest customers.

Reasons for Customer Concentration

We believe that our customer concentration during the Track Record Period was primarily due to the

following key factors, many of which are industry-wide factors.

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Our limited operating history and our initial focus on general entertainment streaming

We commenced our business operations in 2016 and strategically focused on cultivating general

entertainment streamers to capitalize on the largest segment of China’s live streaming market. The market

for general entertainment streaming accounted for approximately 66.9% of China’s live streaming market in

terms of gross billings in 2019, and is expected to remain significant at approximately 64.2% in 2024,

according to the F&S Report. Although our business portfolio expanded significant to other genres, such as

gaming and e-commerce, during the Track Record Period, we still command a strong presence in the

general entertainment streaming market. A majority of our top five customers during the Track Record

Period were focused on general entertainment streaming. In particular, Company A ranked No.1 in China’s

live streaming market in 2017 in terms of gross billings, and continues to remain as a market leader in

general entertainment streaming market, according to the F&S Report.

Highly concentrated live streaming market in China

China’s live streaming market is highly concentrated, with top five platforms, including Company A,

Company C and Company H, accounting for 75.8% of the market share in terms of gross billings in 2019,

according to the F&S Report. We believe that the concentration of our streaming activities and revenues

associated with those platforms is inevitable due to their market leadership to provide us and our streamers

with the most attractive monetization channel.

Strong spending power of viewers following PC-based streamers

Historically, live streaming platforms primarily have operated through PC portals. Not until 2015 did

the mobile live streaming market emerge and gradually gain popularity. In general, viewers of PC-based

streamers generally have a stronger willingness to pay and spending power compared to that of mobile-

based streamers, as the former are more likely to attract a large pool of dedicated, wealthy patrons with a

high level of user engagement, and form a relatively closed community with their viewers, according to the

F&S Report. We have therefore historically focused on cultivating and monetizing our PC-based streamers

and generated a substantial portion of our revenues from live streaming platforms with a strong presence in

the PC live streaming market, such as Company A and Company C, during the Track Record Period.

Diversification Plans

We have formulated a series of diversification plans to reduce the proportion of the revenue

contribution from our major customers. Leveraging our collaboration with a comprehensive league of

streaming platforms in China, we plan to increase our revenue generated from other platforms, especially

those operating primarily through mobile apps. According to the F&S Report, the market size of mobile live

streaming market in terms of gross billings is expected to reach 263.6 billion in 2024 at a CAGR of

approximately 25.6% from 2019 to 2024, accounting for approximately 85.0% of the market size of China’s

live streaming market. In addition, we will continuously enlarge and diversify our customer base along with

our business expansion. For example, we tapped into the short video market in early 2018 to develop short

videos and incubate IP content. As of April 30, 2020, we established partnerships with five major short

video platforms in China, including Douyin, Kuaishou, Jinri TouTiao, Tencent Open Media and Bilibili. We

are also stepping up our effort to incubate e-commerce streamers to realize the significant monetization

potential of our content marketing initiatives in the e-commerce live streaming setting. See “— Growth

Strategies” and “— Our Business and Revenue Sources.”

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Sustainability of Our Business

Our Directors consider that our business model is sustainable despite such customer concentration due

to the following reasons:

• As a result of our ongoing efforts to diversify our customer base and expand revenue sources,

the revenue contribution of Company A as a percentage of our total revenue decreased from

86.5% in 2017 to 46.1% in 2019. The revenue contribution of our top five customers as a

percentage of our total revenue also decreased from 95.8% in 2017 to 91.7% in 2019. We will

continue to implement our diversification plans, and expect that the proportion of the revenue

contribution from our top customers will further decline.

• We believe that we have forged stable, mutually beneficial business relationships with our major

customers by providing them with popular streamers and high-quality content to boost their user

base, as evidenced by numerous accolades we received from them and the top ranking of our

streamer associations. In particular, we have partnered with Company A since our inception, and

three out of our top five customers in 2019 have been with us for at least three years. During the

Track Record Period, our streamer associations won numerous top-ranked awards in the annual

tournament hosted by these platforms. See “— Awards and Recognition” for details.

• Our extensive industry experience and our repertoire of viable streamers are readily transferrable

when we collaborate with other customers, including live streaming platforms, e-commerce

platforms, short video platforms, and other entertainment companies. As such, we will be able to

effectively mitigate our risk exposure in the case of any material adverse changes to or

termination of our relationship with top customers.

OUR SUPPLIERS

Our suppliers primarily include landlords and professional service providers. We do not rely on any

particular supplier for our business operations, nor do we believe we are subject to any material risks related

to changes in our supplier costs. In 2017, 2018 and 2019, purchases from our five largest suppliers were

RMB1.3 million, RMB1.9 million and RMB2.3 million, respectively, accounting for 40.4%, 34.2% and

49.6% of our total purchases for the same periods, respectively, and purchases from our largest supplier

were RMB0.4 million, RMB0.6 million and RMB0.6 million, respectively, accounting for 12.2%, 10.6%

and 13.2% of our total purchases for the same periods, respectively.

As of the Latest Practicable Date, none of our Directors, their associates or any shareholders which, to

the best knowledge of our Directors, owned more than 5% of our issued share capital as of the Latest

Practicable Date, had any interest in any of our five largest suppliers.

SEASONALITY

We have experienced, and we expect to continue to experience, seasonality in our business. For

example, we generally experience a higher level of revenues in the fourth quarter, as live streaming

platforms generally organize marketing campaigns, streamer contests and promotional campaigns towards

the year end, which stimulate viewer spending. We expect our revenues to continue to fluctuate based on

seasonal factors that affect China’s live streaming industry as a whole.

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COMPETITION

Live streaming is a new economy phenomenon and an emerging industry in China. The market for

China’s live streamer associations is rapidly evolving, highly fragmented and intensely competitive. In

2019, the top five players accounted for an aggregate market share of 13.1% in terms of net revenue,

according to the F&S Report. For details of China’s live streaming industry and the competitive landscape

of live streamer associations, see “Industry Overview.”

As a leading player in this market, we face competition from a great number of live streamer

facilitators, talent agencies and entertainment companies. We believe that our ability to compete effectively

depends upon many factors, including our ability to solidify partnerships with live streaming platforms and

other market players, grow a popular and diversified streamer pool, optimize our streamer grooming system,

help our streamers maintain and enlarge their fan base, develop new monetization channels, control our

costs and expenses and manage our business effectively. For risks relating to our competitiveness in the

industry, please see “Risk Factors — Risks Relating to Our Business and Industry — If we fail to compete

and manage our growth effectively, our business, results of operations and financial condition may be

materially and adversely affected.”

INTELLECTUAL PROPERTY

We protect our intellectual property rights through a combination of copyright, trademark and other

intellectual property laws, as well as confidentiality and license agreements with our employees, suppliers,

customers and others. In general, our employees must enter into a standard confidentiality agreement

acknowledging that all inventions, trade secrets, developments and other processes generated by them on

our behalf are our property, and assigning to us any ownership rights that they may claim in those works.

Despite our precautions, however, third parties may obtain and use intellectual property that we own or

license without our consent. During the Track Record Period, we did not find any of such breaches of our

intellectual property rights. However, unauthorized use of our intellectual property by third parties and the

expenses incurred in protecting our intellectual property rights from such unauthorized use may adversely

affect our business and results of operations. See “Risk Factors — Risks Relating to Our Business and

Industry — Unauthorized use of our proprietary information and exclusive rights by third parties, and the

expenses incurred in protecting our intellectual property rights, may adversely affect our business,

reputation and competitive edge.”

As of December 31, 2019, we owned four registered domain names. We generally renew our domain

name registrations once every year and applications for their renewal are usually approximately made one to

three months prior to their expiration. Under normal circumstances, the domain name registrations take

effect immediately after the payment of renewal fees. As of December 31, 2019, all of our registered

domain names remained in effect. If any of our domain name registrations cannot be renewed for any

reason, the domain name registrar may deregister the relevant domain name.

As of December 31, 2019, we held two software copyrights registered with the National Copyright

Administration of the PRC and three trademarks in various categories and registered with the Trademark

Office of the China National Intellectual Property.

We did not have any material disputes or any other pending legal proceedings of intellectual property

rights with third parties during the Track Record Period and up to the Latest Practicable Date.

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For details of our material intellectual property rights, see “Appendix IV — Statutory and General

Information — B. Further Information about Our Company’s Business — 2. Intellectual Property Rights.”

EMPLOYEES

As of December 31, 2019 and the Latest Practicable Date, we had 158 and 147 full-time employees,

all located in China. The following table sets forth the number of our employees by function as of

December 31, 2019 and the Latest Practicable Date.

As ofDecember 31, 2019

As of the LatestPracticable Date

FunctionNumber ofEmployees

% ofTotal

Number ofEmployees

% ofTotal

Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 13.3% 21 14.3%

Content production and operation . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 72.1% 93 63.3%

Business development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.3% 7 4.7%

General administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 13.3% 26 17.7%

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158 100.0% 147 100.0%

Our success depends on our ability to attract, retain and motivate qualified personnel. As part of our

human resources strategy, we offer employees competitive salaries, performance-based cash bonuses and

other incentives.

We primarily recruit our employees in China through recruitment agencies, on-campus job fairs and

online recruiting channels, including our corporate website, job search websites and social networking

platforms. We provide on-the-job training to our boarding employees. We also provide external training

opportunities to selected employees during their course of employment.

As required under PRC regulations, we participate in various employee social security plans that are

organized by applicable local municipal and provincial governments, including housing, pension, medical,

work-related injury and unemployment benefit plans. We are required under PRC laws to make

contributions to employee benefit plans at specified percentages of the salaries. Bonuses are generally

discretionary and based in part on employee performance and in part on the overall performance of our

business.

During the Track Record Period, we did not make adequate social insurances and housing provident

fund contributions for certain employees or make timely registration with the relevant social insurance or

housing reserve fund authorities, and we failed to directly contribute to social insurance or housing

provident fund for some employees. See “— Legal Proceedings and Compliance.”

We believe that we maintain a good working relationship with our employees and we had not

experienced any material labor disputes or any difficulty in recruiting staff for our operations during the

Track Record Period and up to the Latest Practicable Date.

INSURANCE

In line with general market practice, we do not maintain any business interruption insurance or

product liability insurance, which are not mandatory under PRC laws. We do not maintain insurance

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policies covering damages to our technical infrastructure or any insurance policies for our properties. We

also do not maintain insurance policies against risks relating to the Contractual Arrangements. During the

Track Record Period, we did not make any material insurance claims in relation to our business. Any

uninsured occurrence of business disruption, litigation or natural disaster, or significant damages to our

uninsured equipment or facilities could have a material adverse effect on our results of operations. See

“Risk Factors — Risks Relating to Our Business and Industry — Our limited insurance coverage could

expose us to significant costs and business disruption.”

REAL PROPERTIES

We do not own any real properties. As of the Latest Practicable Date, we operated our businesses

through 23 leased properties in Shenzhen, Jinan, Nanjing, Hefei, Guangzhou, Chongqing, Huaian, Yingtan

and Chengdu. Our leased properties in China serve as our offices and employee dormitories are considered

as non-property activities under Rule 5.01(2) of the Listing Rules. We do not rely on the existing leases for

our business operations, and we do not believe a contingency relocation plan is required. Even if we

experience temporary interruption to our usage of any of our leased office space, we believe that our

employees can continue to perform the material aspects of their duties remotely; and our offices in other

locations can adequately support the functioning of our business operations in areas where we experience

temporary office space interruptions through our technology infrastructure.

As of the Latest Practicable Date, our leased properties had a total gross floor area of approximately

6,968.2 square meters, with the gross floor area of each leased property ranging from approximately 51.9

square meters to 1,200 square meters. The relevant lease agreements have lease expiration dates ranging

from August 9, 2020 to September 30, 2023, subject to an option to renew the lease.

As of the Latest Practicable Date, none of the properties leased by us had a carrying amount of 15% or

more of our consolidated total assets. Therefore, according to Chapter 5 of the Listing Rules and section

6(2) of the Companies (Exemption of Companies and Prospectuses from Compliance with Provisions)

Notice (Cap. 32L of the Laws of Hong Kong), this document is exempted from compliance with the

requirements of section 342(1)(b) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance

in relation to paragraph 34(2) of the Third Schedule to the Companies (Winding Up and Miscellaneous

Provisions) Ordinance which requires a valuation report with respect to all our Group’s interests in land or

buildings.

Non-registration

Pursuant to the applicable PRC laws and regulations, property lease agreements must be registered

with the local branch of the Ministry of Housing and Urban-Rural Development of the PRC (中華人民共和國住房和城鄉建設部). The registration of such leases will require the cooperation of our lessors. As of

the Latest Practicable Date, we had not obtained any lease registration for the properties we leased in China,

primarily due to the difficulty of procuring our lessors’ cooperation to register such leases. We will take all

practicable and reasonable steps to ensure that such leases are registered. As advised by our PRC Legal

Advisors, the lack of registration of the lease agreements will not affect the validity of such lease

agreements.

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According to the relevant PRC laws and regulations, we may be ordered by the relevant government

authorities to register the relevant lease agreements within a prescribed period, failing which we may be

subject to a fine ranging from RMB1,000 to RMB10,000 for each non-registered lease. As of the Latest

Practicable Date, we had not received any such request or suffered any such fine from the relevant

government authorities. We undertake to cooperate fully to facilitate the registration of lease agreements

once we receive any requirements from relevant government authorities.

Title Defects

As of the Latest Practicable Date, the properties leased by Nanjing Baihang as offices had been

mortgaged by the lessor. As a result, we may encounter difficulty in continuing to occupy such properties in

the event of a change of ownership resulting from the exercise of the relevant legal rights under the

mortgage.

Pursuant to the Law of Land Administration of the PRC (中華人民共和國土地管理法), the land should

be used strictly in line with the purposes of land use as defined. As of the Latest Practicable Date, the actual

use of properties leased by Nanjing Baihang and Juhe Huashe Entertainment as offices were inconsistent

with such intended purposes as stipulated in the title documents. As a result, should disputes arise due to

title encumbrances to such properties or government action, these leases could be invalidated, and we may

encounter difficulties in continuing to occupy such properties and may be required to relocate.

As of the Latest Practicable Date, lessors of some properties leased by Hefei Kemiao and Changchun

Jiamiao had not provided us with valid title certificates or other ownership documents evidencing their legal

rights to the relevant properties. In addition, lessors of some properties leased by Hefei Kemiao and Huashe

Culture may not have obtained the sublease authorization from the legal owners of the relevant properties to

lease such properties to us. We leased these properties as offices. The absence of such certificates or

documents hampered our ability to determine whether the lessors have the legal right to lease the properties

to us. If any of the lessors is not the legal owner or had not been duly authorized by the legal owner, the

relevant lease agreements may be deemed invalid and, as a result, we may be challenged by the legal

owners of the properties or other third parties, and may be forced to vacate the relevant properties and

relocate our offices.

As of the Latest Practicable Date, we were not aware of any challenge being made by a third party or

government authority on the titles of any of our leased properties that might have a material adverse effect

on our current occupation. In addition, we do not rely on any defective leases discussed above for our

business operations, nor do we expect to incur significant time for identifying, or incur significant cost to

relocate our operations to, comparable alternative properties in proximity. As advised by our PRC Legal

Advisors, we are not subject to any material administrative penalty for any of the title defects in the leased

properties described above. Our Directors believe that potential relocation will not have a material adverse

impact on our business, results of operations and financial condition.

As advised by our PRC Legal Advisors, in the event that the lease agreement of any defective

properties is deemed invalid or otherwise unenforceable due to the lessor’s fault, and that we are unable to

continue occupying such properties, we have the right to claim indemnification against the relevant lessors

for all the damages we suffer in accordance with relevant PRC laws and regulations.

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LICENSES, PERMITS AND APPROVALS

As confirmed by our PRC Legal Advisors, during the Track Record Period and up to the Latest

Practicable Date, we had obtained all licenses, permits, approvals and certificates necessary to conduct our

operations in all material respects from the relevant government authorities in the PRC, and such licenses,

permits, approvals and certificates remained in full effect.

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The following table sets out a list of material licenses and permits currently held by us:

License/Permit Holder Granting AuthorityFirst Grant

Date Expiry Date

License for Production andDistribution of Radio orTelevision Programs (廣播電視節目製作經營許可證)

Happy Entertainment Radio and TelevisionAdministration of GuangdongProvince (廣東省廣播電視局)

November 29,2017

April 30, 2021

Online Culture OperatingLicense (網絡文化經營許可證)

Happy Entertainment The Administration of Cultureof Guangdong Province (廣東省文化廳)

February 2, 2018 February 1, 2021

Commercial PerformanceLicense (營業性演出許可證)

Shenzhen Xinmiao The Administration ofCulture, Radio and Television,Tourism and Sport of FutianDistrict, Shenzhen (深圳市福田區文化廣電旅遊體育局)

February 17,2017

February 16,2021


Guangzhou Yuntu The Administration ofCulture, Radio and Televisionand News Distribution ofPanyu District, Guangzhou (廣州市番禺區文化廣電新聞出版局)

October 29,2018

October 28,2020


Huashe Xingju The Administration of Cultureof Guangdong Province (廣東省文化廳)

January 9, 2018 January 8, 2021


Huashe Xingju The Administration of Cultureand Sport of Futian District,Shenzhen (深圳市福田區文化體育局)

August 25, 2016 August 24, 2020


Huashe Entertainment The Administration of Cultureof Guangdong Province (廣東省文化廳)

February 2, 2018 February 1, 2021


Huashe Entertainment The Administration of Cultureand Sport of Futian District,Shenzhen (深圳市福田區文化體育局)

February 27,2018

February 26,2022


Huashe Culture The Administration of Cultureof Guangdong Province (廣東省文化廳)

January 2, 2018 January 1, 2021


Huashe Culture The Administration of Cultureand Sport of Futian District,Shenzhen (深圳市福田區文化體育局)

August 25, 2016 August 24, 2020


Nanjing Baihang The Administration ofCulture, Radio and Televisionand News Distribution ofNanjing (南京市文化和旅遊局)

March 26, 2018 March 25, 2022

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AWARDS AND RECOGNITION

During the Track Record Period and up to the Latest Practicable Date, we received a number of

awards and recognitions in connection with our business. Some of the significant awards and recognitions

we have received are set forth below.

Awarding Year Award / Recognition Awarding Organization Awarded Entity

2018 Outstanding StreamerAssociation of the Year (2017)（2017年度王者公會）

YY Live Huashe Culture

2018 China’s Live Streaming IndustryElite Award — Most InfluentialStreamer Association of the Year(2017)（中國直播行業箐英獎—2017年度最具影響力公會）

zbrank.com（中國直播榜） Huashe Culture

2018 Most Popular Live Streamer of theYear, Most Talented LiveStreamer of the Year, MostPositive Live Streamer of theYear (2017)（2017年度人氣主播，年度才藝主播，年度陽光主播）

Online Live Performance(Streaming) Branch of ChinaAssociation of PerformingArts（中國演出行業協會網絡表演（直播）分會）

Huashe Culture

2018 Top Ten Talent Agency of theYear（年度十大經紀公司）

Today Blogebrity (今日網紅) Happy Entertainment

2019 Outstanding StreamerAssociation of the Year (2018)（2018年度王者公會）


2019 Outstanding MCN of the Year(2018)（2018年度優秀合作MCN）

Honor of Kings（王者榮耀項目組）

Guangzhou Yuntu

2019 Top 10 Live StreamerAssociation of the Year(2018)（網絡直播行業2018年度公會年度十佳）

Online Live Performance(Streaming) Branch of ChinaAssociation of PerformingArts（中國演出行業協會網絡表演（直播）分會）

Huashe Culture

2020 Third Place of Huajiao Live’sAnnual Carnival（2019花椒年度盛典季軍）

Huajiao Live Nanjing Baihang

2020 Top 1 Streamer of the Year (年度最強主播第一名)


2020 Outstanding MCN of the Year(2019)（2019年度優秀合作機構）

Tencent Feeds (騰訊看點) Guangzhou Yuntu

2020 Influential Streamer Associationof the Year (2019)（2019年年度影響力公會）

Tencent eGame Huashe Xingju

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Awarding Year Award / Recognition Awarding Organization Awarded Entity

2020 Top 10 Streamer Association ofthe Year (2019)（2019年度十佳公會）

Now Live Huashe Xingju

2020 Top 10 Talent Agency for theWhole Network of the Year(2019)（2019年全網年度十大經紀公司）

Online Live Performance(Streaming) Branch of ChinaAssociation of Performing Arts(中國演出行業協會網絡表演(直播)分會) and Today Blogebrity(今日網紅)

Happy Entertainment

2020 Influential eGame-focusedOrganization for the WholeNetwork of the Year (2019)（2019年全網年度影響力遊戲機構）

Online Live Performance(Streaming) Branch of ChinaAssociation of Performing Arts(中國演出行業協會網絡表演(直播)分會) and Today Blogebrity(今日網紅)

Guangzhou Yuntu

2020 Diamond Association（鑽石公會）

Huya Live Huashe Entertainment andGuangzhou Yuntu

LEGAL PROCEEDINGS AND COMPLIANCE

Legal Proceedings

We are subject to legal proceedings, investigations and claims arising in the ordinary course of our

business from time to time. In October 2018, Chengdu Xinghui filed a civil action against one of its

streamer, alleging the streamer’s breach of the exclusive talent agency agreement during their business

cooperation and seeking full payment of the receivable amount under the agreement plus liquidated

damages. In December 2019, the court ruled in favor of Chengdu Xinghui, and ordered the streamer to pay

the receivable amount under the agreement and liquidated damages. The streamer subsequently appealed.

As of the Latest Practicable Date, this litigation was still in progress. Accordingly, we recorded trade

receivables of RMB5.4 million in our combined balance sheets as of December 31, 2019. Considering the

court’s first trial decision, the opinion of our legal counsel, and the streamer’s sound financial condition and

ability to make the payment, our Directors believed that such amount would be fully recoverable and,

therefore, no credit loss allowance had been recognized against these receivables.

Save as disclosed above, as of the Latest Practicable Date, we were not involved in any litigation or

arbitration proceedings pending or, to our knowledge, threatened against us or any of our Directors that

could have a material adverse effect on our business, results of operations or financial condition.

Non-compliance Incidents

We are subject to a number of regulatory requirements and guidelines issued by the regulatory

authorities in China. As advised by our PRC Legal Advisors, during the Track Record Period and up to the

Latest Practicable Date, save as the incidents of systemic non-compliance as set out below, we had

complied with the relevant laws and regulations in all material respects.

Social insurance and housing provident funds

Background and reasons of non-compliance incidents

Pursuant to the relevant PRC laws and regulations, employers are obligated to directly and duly

contribute to the social insurance and housing provident funds for their employees. Employers are not

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allowed to engage third parties to make such contributions. During the Track Record Period, Shenzhen

Xinmiao, Huashe Xingju, Huashe Entertainment, Huashe Culture and Nanjing Baihang failed to directly

contribute to social insurance or housing provident fund for some employees, and instead fulfill their

contributions to social insurance and housing provident funds for some employees through local human

resource service agencies or other intra-group companies.

During the Track Record Period, Happy Entertainment, Shenzhen Xinmiao, Shenzhen Xinmeng,

Huashe Juhe, Huashe Xingju, Huashe Entertainment, Huashe Culture, Guangzhou Yuntu, Nanjing Baihang,

Hefei Kemiao and Changchun Jiamiao failed to make full contributions to social insurance and housing

provident funds for some employees.

Our non-compliance was primarily due to (1) employees’ oversight and the lack of comprehensive

understanding by the responsible staff of the relevant local regulations, (2) insistence by some employees on

participating in local pension schemes offered in their places of permanent residency, instead of the pension

schemes offered in their places of work, and (3) some employees’ unwillingness to participate in the

housing provident fund scheme. We estimate that the aggregate shortfall of social insurance payments and

housing provident fund contributions for 2017, 2018 and 2019 was approximately RMB1.0 million,

RMB1.7 million and RMB1.9 million, respectively.

Potential legal consequences

As advised by our PRC Legal Advisors, if any of the relevant social insurance authorities is of the

view that we failed to make full social insurance contributions for our employees in accordance with the

Social Insurance Law of the PRC (中華人民共和國社會保險法) and relevant regulations, it may order us to

pay the outstanding balance within a prescribed time period plus a daily late fee at the rate of 0.05% of the

outstanding amount starting from the due date. If we fail to do so within the prescribed period as requested

by the relevant social insurance authorities, we may be subject to a fine ranging between one to three times

of the total outstanding balance.

As advised by our PRC Legal Advisors, if any of the relevant housing provident fund authorities is of

the view that we failed to make full housing provident fund contributions for our employees in accordance

with the Regulations on the Administration of Housing Provident Fund (住房公積金管理條例), it may order

us to pay the outstanding balance within a prescribed time period. If we fail to do so within the prescribed

period, the relevant housing provident fund authority may apply to a PRC court for an order of mandatory

payment.

Ratifications and internal control measures

During the Track Record Period and up to the Latest Practicable Date, we had not been ordered to

make direct payment of social insurance and/or housing provident fund contributions. As of the Latest

Practicable Date, no material administrative action, fine or penalty had been imposed by the relevant

regulatory authorities with respect to our contributions to social insurance and housing provident funds, nor

had we received any order or been informed to settle the under-payments.

As of the Latest Practicable Date, we had ceased to engage these local human resource service

agencies and made direct social insurance and housing provident funds contributions for all of our

employees. We are also in the process of adjusting the payment basis of the social insurance and housing

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BUSINESS

provident funds for our employees pursuant to the standards stipulated under the applicable PRC laws and

regulations. To prevent recurrence of such non-compliance, our PRC Legal Advisors provided our

management with relevant rules and practices in relation to compliance with social insurance and housing

provident fund requirements. We have implemented internal rules regarding management of our social

insurance and housing provident fund contributions, pursuant to which we will conduct a series of

compliance measures, such as periodic management review and consultation with our external PRC legal

counsel on the latest rules and practices, to ensure that we have complied with applicable PRC laws and

regulations in all aspects, including making adequate social insurance and housing provident fund

contributions for all of our employees consistent with the standards stipulated thereunder.

Our Directors believe that the non-compliance incidents would not have a material adverse effect on

our business and results of operations, considering that (1) we had not been subject to any material

administrative penalties during the Track Record Period and up to the Latest Practicable Date; (2) as of the

Latest Practicable Date, we had not received any notifications from the relevant PRC authorities requiring

us to pay the shortfalls or the penalties with respect to social insurance and/or housing provident funds;

(3) we were neither aware of any employee complaints nor were involved in any labor disputes with our

employees with respect to social insurance and/or housing provident funds; (4) as advised by our PRC

Legal Advisors, based on the interviews with and/or confirmations obtained from the competent authorities

which encompassed all relevant geographical locations of our operations, the likelihood that we would be

required by relevant authorities to pay the shortfalls for social insurance and housing provident fund

contributions and/or subject to material administrative penalties due to failure to make full contributions is

remote; and (5) our Controlling Shareholders [have entered into] a deed of indemnity with us to indemnify

us against any claims, fines and other liabilities arising from such non-compliance. As a result, we did not

make any provisions in connection with the non-compliance during the Track Record Period and up to the

Latest Practicable Date.

HEALTH, SAFETY AND ENVIRONMENTAL MEASURES

Due to the nature of our business, we do not currently have any material liabilities relating to health,

work safety and environment and do not expect to incur any material liabilities in these regards which could

have any material adverse impact on our business and operating results. During the Track Record Period

and up to the Latest Practicable Date, we had not been subject to any fines or other penalties due to

non-compliance with applicable health, safety or environmental regulations.

INTERNAL CONTROL AND RISK MANAGEMENT

Internal Control

We have designated responsible personnel in our Company to monitor the ongoing compliance by our

Company with the relevant PRC laws and regulations that govern our business operations and oversee the

implementation of any necessary measures. In addition, we plan to provide our Directors, senior

management and relevant employees with continuing training programs and/or updates regarding the

relevant PRC laws and regulations on a regular basis with a view to proactively identify any concerns and

issues relating to any potential non-compliance.

In addition, we have adopted a set of internal rules and policies governing the conduct of our

employees. We have established a monitoring system to implement anti-bribery and anti-corruption

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BUSINESS

measures so as to ensure that our employees comply with our internal rules and policies as well as the

applicable laws and regulations. For example, our management is responsible for conducting a fraud and

bribery risk assessment on an annual basis and our audit committee reviews and approves our annual risk

assessment results and policies. We have also identified certain forbidden conduct in our internal anti-

bribery and anti-corruption policies, including, among others, the prohibition to acceptance of bribes or

rebates, embezzlement or misappropriation of our assets, and forgery or alteration of our accounting

records.

We offer compulsory training courses to our new employees and continuing training to our existing

employees to enhance their knowledge and awareness of the relevant rules and regulations. We also keep

abreast of the latest regulatory updates and communicate with the relevant regulatory authorities from time

to time to discuss the latest regulatory requirements in light of the evolving nature of the live streaming

industry.

In addition, we have also appointed Zhongtai International Capital Limited as our external compliance

advisor with effect from the date of the [REDACTED] to advise on ongoing compliance with the Listing

Rules and other applicable securities laws and regulations in Hong Kong.

During the Track Record Period, our Directors did not identify any material internal control

weaknesses or failures. Considering the nature, scale, reasons and potential impact of the non-compliance

incidents disclosed in “— Legal Proceedings and Compliance” in this document, our Directors are of the

view that we have adequate and effective internal control procedures, the suitability and competency of our

Directors is compliant with Rules 3.08 and 3.09 of the Listing Rules, and that our Company is suitable for

[REDACTED] under Rule 8.04 of the Listing Rules. The Sole Sponsor concurred with such view of our

Directors on the same basis as described above.

Risk Management

We are exposed to various risks in the operations of our business and we believe that risk management

is important to our success. Key operational risks faced by us include, among others, changes in general

market trends and the regulatory environment of the live streaming industry, our ability to maintain,

improve and innovate our service offerings, our ability to maintain cooperation relationships with live

streaming platforms, and our ability to retain and grow our streamer pool. See “Risk Factors” for

disclosures on various risks we face. In addition, we also face numerous market risks, such as interest rate,

credit and liquidity risks that arise in the normal course of our business. See “Financial Information —

Quantitative and Qualitative Disclosures about Market Risks” for details.

We have implemented various policies and procedures to ensure effective risk management at each

aspect of our operations, including the administration of daily operations, financial reporting and recording

procedures, fund management policies, and compliance with applicable laws and regulations. Our Board

oversees and manages the overall risks associated with our operations. We [have] established an audit

committee to review and supervise the financial reporting process and internal control system of our Group.

See “Our Directors and Senior Management — Board Committees — Audit Committee” for the

qualifications and experience of these committee members as well as a detailed description of the

responsibility of our audit committee. We [have] adopted written terms of reference in compliance with

Rule 3.21 of the Listing Rules and the Corporate Governance Code and Corporate Governance Report as set

out in Appendix 14 to the Listing Rules.

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Documents

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND … · 2020-06-07 · THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THE INFORMATION MUST BE READ IN CONJUNCTION